The Crypto Industry's Rush To Tokenize Stocks Is Setting Off Alarm Bells—And Wall Street Wants Regulators To Pump The Brakes

Core Viewpoint - The emergence of blockchain-based tokens linked to traditional equities has raised concerns among Wall Street experts about market fragmentation and investor risks [1][2]. Group 1: Market Developments - Companies like Robinhood Markets Inc., Gemini Trust Company, and Coinbase Global Inc. are either launching or seeking approval for tokenized stocks, which are blockchain instruments tracking traditional equities [2]. - The total value of tokenized public stocks aimed at retail investors has increased significantly to $412 million as of September, up from just a few million dollars a year earlier [2]. Group 2: Product Characteristics - Tokenized stock products often do not provide the same rights, disclosures, and protections as traditional equities, resembling riskier derivatives instead [3]. - Many tokenized stock offerings are marketed similarly to actual shares, but the underlying structure may involve synthetic instruments, shifting the burden of understanding onto the investor [4]. Group 3: Structural Variability - The structures of tokenized stocks vary widely; some are backed 1:1 by underlying stocks, while others offer economic exposure through derivatives, often lacking ownership, voting rights, or traditional dividends [5]. - Different tokenized offerings, such as those linked to Nvidia Corp. and Tesla Inc., have varying rights and disclosures, raising concerns about investor protection [6].